Advertisement

Experimental Economics

, Volume 14, Issue 2, pp 273–285 | Cite as

Remain silent and ye shall suffer: seller exploitation of reticent buyers in an experimental reputation system

Article

Abstract

By providing incentives for sellers to act in a trustworthy manner, reputation mechanisms can mitigate moral-hazard problems when particular buyers and sellers interact infrequently. However, these mechanisms rely on buyers sharing their private information about sellers, and thus may suffer from too little feedback when provision is costly. We experimentally compare a standard feedback mechanism to one in which sellers can inspect a buyer’s feedback-provision history, thus providing incentives to share private information even when costly. We find fairly high trust and trustworthiness in all markets, with buyers providing costly feedback, especially negative, sufficient to induce trustworthiness. However, feedback-provision histories did not improve outcomes, and at least weakly decreased trustworthiness with experienced participants, as this information enabled sellers to discriminate and ship less frequently to buyers lacking a reputation for information sharing.

Keywords

Experimental economics Trust Reputation Electronic markets 

JEL Classification

C72 C91 L14 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Bohnet, I., & Huck S. (2004). Repetition and reputation: Implications for trust and trustworthiness when institutions change. The American Economic Review, 94(2), 362–366. CrossRefGoogle Scholar
  2. Bohnet, I., Huck S., Harmgart, H., & Tyran, J. R. (2005). Learning trust. Journal of the European Economic Association, 3(2/3), 322–329. Google Scholar
  3. Bolton, G. E., Katok, E., & Ockenfels, A. (2004). How effective are electronic reputation mechanisms? An experimental investigation. Management Science, 50(11), 1587–1602. CrossRefGoogle Scholar
  4. Bolton, G. E., Katok, E., & Ockenfels, A. (2005). Cooperation among strangers with limited information about reputation. Journal of Public Economics, 89(8), 1457–1468. CrossRefGoogle Scholar
  5. Carpenter, J. P. (2007). The demand for punishment. Journal of Economic Behavior & Organization, 62(4), 522–542. CrossRefGoogle Scholar
  6. Chen, K. Y., Hogg, T., & Wozny, N. (2004a). Experimental study of market reputation mechanisms. In EC’04: Proceedings of the 5th ACM conference on electronic commerce (pp. 234–235). New York: ACM.  10.1145/988772.988810. CrossRefGoogle Scholar
  7. Chen, K. Y., Hogg, T., & Wozny, N. (2004b). Experimental study of reputation mechanisms in an exchange economy. Available at http://www.hpl.hp.com/personal/Kay-Yut_Chen/paper/reputationExptOnly.pdf.
  8. Dellarocas, C., & Wood, C. A. (2008). The sound of silence in online feedback: estimating trading risks in the presence of reporting bias. Management Science, 54(3), 460–476. CrossRefGoogle Scholar
  9. Ely, J., & Välimäki, J. (2003). Bad reputation. The Quarterly Journal of Economics, 118(3), 785–814. CrossRefGoogle Scholar
  10. Engelmann, D., & Fischbacher, U. (2009). Indirect reciprocity and strategic reputation building in an experimental helping game. Games and Economic Behavior, 67(2), 399–407. CrossRefGoogle Scholar
  11. Fehr, E., & Gächter, S. (2000). Cooperation and punishment in public goods experiments. The American Economic Review, 90(4), 980–994. CrossRefGoogle Scholar
  12. Fischbacher, U. (2007). z-Tree: Zurich toolbox for ready-made economic experiments. Experimental Economics, 10(2), 171–178. CrossRefGoogle Scholar
  13. Gazzale, R. S. (2005). Giving gossips their due: information provision in games with private monitoring. Economics department working paper, Williams College, url: http://ideas.repec.org/p/wpa/wuwpga/0508002.html.
  14. Gazzale, R. S., & Khopkar, T. (2009). Remain silent and ye shall suffer: seller exploitation of reticent buyers in an experimental reputation system. Department of Economics Working Papers 2008-22, Williams College. Google Scholar
  15. Huck, S., Lünser, G. K., & Tyran, J. R. (2006). Competition fosters trust. Discussion Paper DP6009, Centre for Economic Policy Research. Google Scholar
  16. Johnson, E. J., Camerer, C. F., Sen, S., & Rymon, T. (2002). Detecting failures of backward induction: monitoring information search in sequential bargaining. Journal of Economic Theory, 104(1), 16–47. CrossRefGoogle Scholar
  17. Kandori, M. (1992). Social norms and community enforcement. Review of Economic Studies, 59(1), 63–80. CrossRefGoogle Scholar
  18. Li, L. I., & Xiao, E. (2010). Money talks? An experimental study of rebate in reputation system design. SSRN eLibrary, url: http://ssrn.com/paper=1597764.
  19. Nikiforakis, N. (2008). Punishment and counter-punishment in public good games: can we still govern ourselves? Journal of Public Economics, 92(1–2), 91–112. CrossRefGoogle Scholar
  20. Nowak, M. A., & Sigmund, K. (1998). Evolution of indirect reciprocity by image scoring. Nature, 393, 573–577. CrossRefGoogle Scholar
  21. Ostrom, E., Walker, J., & Gardner, R. (1992). Covenants with and without a sword: self-governance is possible. The American Political Science Review, 86(2), 404–417. CrossRefGoogle Scholar
  22. Resnick, P., & Zeckhauser, R. (2002). Trust among strangers in Internet transactions: empirical analysis of ebay’s reputation system. In M. R. Baye (Ed.), Advances in applied microeconomics: Vol. 11. The economics of the Internet and E-commerce. Amsterdam: Elsevier. Google Scholar
  23. Resnick, P., Zeckhauser, R., Swanson, J., & Lockwood, K. (2006). The value of reputation on ebay: a controlled experiment. Experimental Economics, 9(2), 79–101. CrossRefGoogle Scholar
  24. Selten, R., & Stoecker, R. (1986). End behavior in sequences of finite prisoner’s dilemma supergames: a learning theory approach. Journal of Economic Behavior & Organization, 7(1), 47–70. CrossRefGoogle Scholar
  25. Siegel, S., & Castellan, Jr. N. J. (1988). Nonparametric statistics for the behavioral sciences (2nd edn.). New York: McGraw-Hill. Google Scholar

Copyright information

© Economic Science Association 2011

Authors and Affiliations

  1. 1.Department of EconomicsWilliams CollegeWilliamstownUSA
  2. 2.Cartesian Consulting Pvt. Ltd.WorliIndia

Personalised recommendations